Sale of Your Personal, Principle Residence – The Home Office Tax Trap
Many of us take legitimate deductions for our home offices. For some, this may include a deduction for depreciation for the part of our home used as a home office.
But watch out! This may create a future tax liability.
When you sell your house, you may have to “recapture” any depreciation claimed for your home office. Any depreciation recaptured is taxed at a blanket 25% rate.
Example: Dick and Lizinka purchased their house in 2001. In 2005, their son, Campbell moved to Mississippi and his bedroom was converted into a home office. As part of their home office deduction, Dick and Lizinka deducted $250 in depreciation on their 2006, 2007, and 2008 tax returns. They sold their house in 2009. They must “recapture” this depreciation deduction of $750 on their 2009 tax return.
Their 2009 tax bill will include $187.50 for depreciation claimed for their home office.